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EDP and risks.

When it comes to protecting EDP systems, risk managers should emphasize loss prevention techniques, states Gary Baxter, assistant director of insurance for Weyerhaeuser Company and chair of the 1992 Western Regional Conference. "For EDP systems, loss prevention is the number one priority; insurance comes second, and should only be used for catastrophic losses."

Mr. Baxter suggests that risk managers should apply some of the basic concepts of risk management to protect their companies' EDP systems from loss. "Identifying the risks is the first technique to use," he says. "In this case, the risks are any events such as a fire, flood or earthquake that could physically harm the computer systems." This step also entails determining how important the EDP system is to the company's overall operations. "You should develop a worst-scenario such as a breakdown of the system," declares Mr. Baxter. "This will allow you to see if the company could survive an EDP breakdown, and if not, what steps need to be taken to protect the system."

Eliminating or controlling potential risks constitutes the second risk management technique to use in EDP protection. "Studies by Factory Mutual Research Corporation demonstrate that electrical problems such as power shorts and surges are responsible for 50 percent of computer losses," says Mr. Baxter. "However, fires cause the greatest amount of loss in terms of dollars." Consequently, risk managers should take steps that will protect EDP systems from losses arising from these two sources. "Areas or rooms with EDP equipment should be subdivided from other work spaces so that if a fire starts in an adjoining area, it won't spread to the computer room," says Mr. Baxter. "in addition, automatic sprinklers offer the best protection for EDP systems." As for the danger posed by electrical disturbances, Mr. Baxter recommends eliminating excess cables and using infrared scanning power connections. "Infrared scanners are devices that detect 'hot spots' or abnormal electrical discharges emanating from cables and circuits," explains Mr. Baxter.

Risk managers should also create a disaster plan for dealing with emergencies. "This plan should include steps for duplicating records and storing critical company data offsite," says Mr. Baxter. "The company should also look at having alternate facilities available in case of an emergency."

Assuming the risk is the third risk management technique to use in protecting EDP systems. "This step is pure risk finance; in other words, setting up an SIR." The fourth step is transferring the risk, or purchasing insurance. "There are a number of coverages that can be used," he says. "However, standard fire policies have EDP exclusions for losses due to electrical or magnetic disturbances, changes in temperature and humidity and mechanical breakdowns." To fill in these coverage gaps, Mr. Baxter recommends having these exclusions removed. "Another option is to purchase a special EDP policy," he adds.
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Title Annotation:36th Annual Risk and Insurance Management Society Western Regional Conference; protecting electronic data processing systems
Author:Christine, Brian
Publication:Risk Management
Date:Nov 1, 1992
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